Thursday, September 13, 2012

Tuition is Unemployment Insurance (for other people)

What would happen to a labor market if the 5% least skilled potential workers voluntarily did not seek employment?

The number of unemployed job seekers would drop significantly.

The unemployment rate would likely drop (it's a ratio so this isn't a guarantee since there could be a scenario where unskilled labor is in high demand theoretically; probably correct due to minimum wage laws though).

The least efficient workers would likely have a better lifestyle, since their returns are relatively low when compared to effort.

These are some rosy results.

Four more years!

Enacting this scenario would have some requirements though, such as the following:

The 5% would need a way to remove the social stigma of not working and receiving subsidies.

The 5% would need to stay occupied in a fulfilling way to avoid being a further drag on society (idle hands and all).

The 5% would need to be subsidized somehow.

We have this system already. This social program is commonly referred to as "college." Workers are taxed to give money in various forms to educational institutions and to subsidize student loans to 18-23 year olds who are kept busy with homework and tests. These students may have tremendous potential, but it is still latent at this point (for the most part). Absent this government transfer of wealth, the number of enrolled students would surely drop. Why? If college is a great investment, then private companies would loan money at the subsidized interest rate levels anyway. They didn't (when they could), so there must be some questionable risky loans underwritten by taxpayers. The program is an overall drain on the economy; that's hard to argue. The political question is whether the net cost is worth the reduced variation in outcomes. Or, in other words, is the unemployment insurance policy worth the premiums?